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here ya go...
for the benefit of those who are worried and don't know how to read the ARs: apart from those named by jensonlaw, other small caps here which have issued such death spiral convertibles in the previous year: (pls double check yourself for verification)--
Alantac
HLH Group
Lexicon
Vibropower
Anwell
Centillion
E3 Holdings
Contel
KXD
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http://www.webb-site.com/articles/toxicon.htm --this was the article in HK by the activist, Webb, in 2005, which exposed CSFB (credit suisse) and the international banks' role in such issues, which led to them being literally killed in the HK market. A pity we have no such protection here.
cathy, you can check it by reading the SGX announcements for the misc announcements, and the ARs of the actual companies you're holding.
look for the section where they say "details of any changes in share capital arising from....." (warrant issue/note issue/bond issue etcetc).
o/w, really. just look at jensonlaw's post. the names of the involved funds. do you see a pattern? it tells you then what to look out for in the SGX announcement of your own invested stock.
A toxic convertible defined as:
Toxic Convertible
Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as death spiral convertibles or floorless convertibles.
So one way to spot a company likely to use such debt structure would be company in financial straits, making losses year after year.
It is difficult to know if the CB issued by a company that you'v shares belong to such toxic convertibles. When shareholders gave company management their votes at Agm to raise money in whatever structures, they trust the management and board of directors to do the right thing in the interests of shareholders. The problem sometime is the management board themselves also don't fully understand how a finance structure work under different senarios. They leave and trust their financial advisers to work the deal.
Another observation is it seem under Singaporean rule, the management board does'nt have to come back to shareholders to seek approval to approve any CB issues. If such a regulatory requirement is imposed, shareholders could at least probe for more answers from management board and financial advisers on how those debts were structured. Shareholders would have more information on how the CB would benefit them or not.
From my past experience with a certain company, the company board sometimes do not want to give too much details to shareholders even when shareholders asked for more information on the CB structure. Not sure why the board behave that way. I'm sure there are many others with similar experience to share here. (For me, when the board don't give above satisfactory answers to queries, it's a SELL for me.)
May I know whether is there a way to check the share you are holding has issue these kind of instruments? Any websites?
Is there anywhere I can find which 20 small cap companies here have issued 'death-spiral' convertibles ?
INSIDERS' SUPPORT LACKING AS DAYEN FALLS
The counter started the year at 75 cents before hitting a low of 56 cents in March amid turmoil on global equity markets.
It made a swift recovery to 75.5 cents in April and, as recently as June 2, was at 61.5 cents.
But in the past three weeks, the counter has come under serious selling pressure, losing about two-thirds of its value.
It then dived a further 26.2 per cent yesterday to a record low of 15.5 cents with 13.13 million shares traded.
Dealers were at a loss to explain Dayen's sudden rout.
One trader noted that the crash in Dayen's share price coincided with a proposed $50 million convertible bond issue by the company to Pacific Capital Investment Management.
'Given the adverse market sentiment, investors are taking no chances over possible dilution of their interests in Dayen when the bonds are issued,' he added.
The counter started the year at 75 cents before hitting a low of 56 cents in March amid turmoil on global equity markets.
It made a swift recovery to 75.5 cents in April and, as recently as June 2, was at 61.5 cents.
But in the past three weeks, the counter has come under serious selling pressure, losing about two-thirds of its value.
It then dived a further 26.2 per cent yesterday to a record low of 15.5 cents with 13.13 million shares traded.
Dealers were at a loss to explain Dayen's sudden rout.
One trader noted that the crash in Dayen's share price coincided with a proposed $50 million convertible bond issue by the company to Pacific Capital Investment Management.
'Given the adverse market sentiment, investors are taking no chances over possible dilution of their interests in Dayen when the bonds are issued,' he added.
I didn't even know such instruments exist. Where can I buy them?
Monday, June 30, 2008
Top Print Edition Stories
Published June 30, 2008
By CHEW XIANG
Businesstimes.com
A controversial debt instrument blamed overseas for sending small caps' share prices into a 'death spiral' is now raising a stink in the local stock market.These 'instruments of mass destruction', as one banker calls them, are a type of low- or zero-coupon convertible bond that can be converted into shares at a discount - usually 10 per cent - to the average share price in a look-back period, rather than only at a premium, as is normal.
In the past 12 months, at least 20 small cap companies here have issued 'death-spiral' convertibles - so named by detractors because shares converted at a discount are quickly sold for a near certain profit, often depressing the share price as a result. The issuance is typically divided into several tranches.
As each trance gets converted, the price spirals downwards, both diluting and eroding the value of existing shareholders' holdings.